MODELLING INFLATION AND PRODUCER PRICES OF FOOD COMMODITIES IN GHANA

It is empirically found that inflation exerts significant positive effects on producer prices of food commodities in Ghana in the long run. This implies that the rate of inflation determines the trends of the prices received by a farmer for his produce, ceteris paribus. However,food producers have virtually no advantage making extra profit when inflation is high or when increase in inflation is expected. This is due to the nature of food commodities: they are highly perishable, have a short shelf life characterised by low level of storage, long gestation periods and lags in production. The government of Ghana and other policy-making bodies should implement policies to keep the producer prices of food commodities at a given threshold as the non-food price increases. This is to encourage improved level of food production since one of the known determinants of agricultural supply and farm income is prices received by farmers for their produce. This will also minimise the conflict between agriculture and the manufacturing sectors in term of maximising profits in event of high inflation or where inflation is expected to rise.